Nestle ponders Cadbury for the price of a KitKat

RELATED NEWS Cadbury is sweet on takeover by Hershey Kraft weighs higher Cadbury bid as rivals circle: Source Nestle may consider a bid for Cadbury

Swiss giant Nestle is scanning the bid battle for Cadbury for a chance it might get back a lucrative US licence for its KitKat chocolate bar or pick up gum and candy in a breakup bid.

The world's largest food company would face big anti-trust hurdles if it launched its own bid for Cadbury, but might scoop up tasty morsels prised from the British confectioner through a tie-up with potential bidder Hershey Co, said sources close to the situation.

"There is potential for Nestle to play kingmaker if it wants to. Hershey could sell KitKat distribution rights back to Nestle to help finance a bid for Cadbury," said an investment banker who covers the consumer goods industry.

Nestle, the world's third biggest confectionery player after Mars-Wrigley and Cadbury, has stayed quiet ever since Kraft Foods expressed interest in Cadbury on Sept. 7, but may be tempted to look at alliances if Cadbury's fate is sealed.

"Nestle's ideal deal in the chocolate world is Hershey, and if Cadbury and Hershey combine then this would be lost forever, so Nestle's first reaction might have been to try and block any Cadbury deal," said a source with knowledge of the situation.

"But if Nestle concludes Cadbury will be taken over then it will have to look at what it can gain from a deal in terms of KitKat rights in the US and chewing gum," the source added.

Many of the big players in the global sweets industry -- US-based Hershey, Italy's Ferrero and Nestle -- are already weighing rival bids to Kraft's, according to Reuters sources and media reports.

Kraft launched a cash and shares bid for Cadbury earlier this month which currently values Cadbury shares at 724 pence or 9.9 billion pounds ($16.44 billion). Cadbury shares now stand at 814 pence, a gap of 12 percent.

Analyst Jon Cox at Kepler Capital Markets says the KitKat and also Rolo licences would raise less than USD1 billion, but others point out Nestle could also buy up Cadbury's Trident gum and candy business in a Hershey break-up bid for Cadbury.

Jeremy Batstone-Carr at brokers Charles Stanley says it would be impossible for Hershey to takeover Cadbury alone as Cadbury is around 1-1/2 times bigger in terms of sales and profit and twice as large in terms of market capitalisation.

Hershey, where the charitable Hershey Trust owns 32 percent of the equity and controls 80 percent of voting shares, has limited ability to raise finance without help, analysts said.

1970 and for Rolo in 1970 from then owner Rowntree, which was bought by Vevey-based Nestle in 1988.

A sale of Hershey would mean the brand rights in the US would revert back to Nestle under a licensing agreement between the two, but that never looked likely with Hershey controlled by the Hershey Trust.

Nestle has always declined comment on a Cadbury bid although Chief Executive Paul Bulcke said in September the group had no plans for big acquisitions in 2009 and 2010.

"In general, our policy on the subject of acquisitions foresees a sum of 2-3 billion Swiss Francs for acquisitions which make sense strategically," Bulcke said in a recent newspaper interview.

"Many people say that the crisis was the right moment to do buys but the majority of targets also prefer to hold on rather than sell at a low price. It is true that the situation is starting to reverse, but our primary responsibility remains to improve what we've already got," Bulcke added.

Under UK takeover rules, Kraft has until Dec. 7 to post its official offer document to Cadbury shareholders which will then trigger a 60-day takeover timetable, which means a rival bidder may not emerge until early February 2010.

Analysts say a more likely acquisition for Nestle could be US babyfood group Mead Johnson Nutrition Co, currently valued at around USD9 billion.

A buy would be a good strategic fit but Nestle would have to pay a high premium along the lines of previous infant nutrition deals like its own acquisition of Gerber and Danone's purchase of Numico, both in 2007.